Toyota Plans Higher Output, Not Spending as Volkswagen Aims for Top Spot

Toyota Motor Corp. plans to produce more vehicles without increasing capital investments as Volkswagen AG attempts to surpass it as the world’s largest carmaker by 2018.

“We are challenging ourselves to produce more even as we restrain capital spending,” President Akio Toyoda said yesterday at the North American International Auto Show in Detroit.

The carmaker plans to keep annual capital spending at about 700 billion yen ($8.46 billion) for at least the next five years, Executive Vice President Atsushi Niimi said Dec. 24. With more efficient processes, the Toyota City, Japan-based carmaker seeks to be as productive as when it spent more than twice that three years ago, he said.

“There have been companies that have gone belly-up for carrying excess capacity, but no company has gone bankrupt for not being able to produce,” Niimi said. “We now realize humbly that we shouldn’t make cars until we’re absolutely certain they will sell.”

Toyota is spending less on expanding capacity after the global financial crisis caused its first loss in almost six decades and problems tied to unintended acceleration prompted a year of record recalls. The company plans to invest 3.5 percent of revenue in new plant facilities this year ending in March, compared with 5.6 percent in the year ended March 2008.

‘Admonished’

From around 2003, Toyota’s pace of production growth was excessive as the company invested in new plants and facilities, Niimi said. “We’ve been admonished to never let this happen again,” he said.

Now, the company will shift focus to implementing leaner manufacturing methods, such as paint lines that are 25 percent shorter and engine production that is no costlier when output is half of earlier levels, Niimi said.

Shares in the automaker rose 0.1 percent to 3,460 yen as of the 11 a.m. trading break in Tokyo. The stock fell 17 percent in 2010.

Toyota said Dec. 21 it plans to increase global production 1 percent to 7.7 million units in 2011.

By limiting expansion, Toyota’s improved factory operating levels and lower depreciation costs will lead to higher earnings, said Edwin Merner, president of Tokyo-based Atlantis Investment Research Corp.

“Toyota is a very well-managed company,” he said. “You should see a very good improvement in profit margins.”

Volkswagen Spending

Volkswagen plans to spend 41.3 billion euros ($53.5 billion) in new property, plant and equipment in the next five years, $10 billion more than its Japanese rival. Wolfsburg, Germany-based Volkswagen’s capital spending will equal about 6 percent of sales during the period, according to the company.

“We want to make Volkswagen the world’s most future-proof automotive group,” Chief Executive Officer Martin Winterkorn said in November.

Volkswagen has a goal of surpassing Toyota in sales and profitability by 2018.

“Whether a certain company has the No. 1 volume position is not for us to decide,” Toyoda, the company’s president, said yesterday. “It’s up to the customer.”

Research Spending

Toyota isn’t restraining spending on research and development and will allocate 760 billion yen toward new models and technology for the fiscal year ending in March, Toyoda said.

That’s 4.7 percent higher than the 725.35 billion yen Toyota spent on research and development through March 2010, according to Bloomberg. The carmaker’s research and development spending budget peaked at 958.88 billion in the fiscal year ended March 2008.

While Toyota’s sales will recover in the U.S., the company will and should focus its expansion in emerging markets, Merner said.

Toyota will start building Corolla compacts at a new plant in Changchun, China, in the first half of 2012. The factory will build 100,000 Corollas a year.

In September, Toyota said it is spending $600 million on a third plant in Brazil. Production of 70,000 units a year of a new compact model will begin there in the second half of 2012.

The company also is investing $1.3 billion on a new plant in the U.S. to increase production of Corolla compacts. Toyota will begin installing assembly equipment at the facility in Blue Springs, Mississippi, with a goal of starting output by late 2011, the company said in June.

The Mississippi plant eventually may be used to produce the Prius, Toyoda said yesterday, without elaborating.

To contact the reporter on this story: Makiko Kitamura in Tokyo at mkitamura1@bloomberg.net.

To contact the editor responsible for this story: Kae Inoue kinoue@bloomberg.net.

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